We’ve all seen pictures of Detroit’s abandoned buildings, and read of the seemingly never-ending political disaster. Now there are growing signs of possibility.

Detroit boasted the nation’s highest homicide rate. Police response times were five times the national average. A heart attack was usually fatal because medical care barely existed. 78,000 blighted buildings were labeled “dangerous.” And about 40% of the city’s 88,000 street lights were broken. The city’s deficit was $700 million on $1.2 billion in revenue. Retirement liabilities came to $9.2 billion, and coincidentally several pension-fund trustees and money managers had been indicted for accepting kickbacks.

When Governor Rick Snyder appointed Kevyn Orr as emergency city manager, Detroit’s unions, politicians and black leaders warned that it would mean civil war. Jesse Jackson charged that Governor Snyder was creating a “plantocracy, a plantation-oracracy,” apparently failing to notice that Mr. Orr is black. Allowing the city to continue to crumble in its political failures would have been the real crime. But what courage to take on that job!

Mr. Orr filed for bankruptcy last July. He proposed slashing unfunded retirement liabilities and general-obligation bonds by up to 90%. Unions sued.
Federal bankruptcy judge Steven Rhodes set a precedent by affirming that federal bankruptcy law trumps state laws protecting pensions and contracts.

Mr. Orr has negotiated smaller haircuts which still demand tough discipline, but will put the city on a sustainable post-bankruptcy course. A new police chief has instituted new IT systems that have contributed to a 14% decline in homicides. 3,200 streetlights have been replaced, with 50,000 planned by the end of 2015. Mr. Orr’s plan will free up more than $100 million annually for revitalization. New mayor Mike Duggan and the city council have formed a land bank to clear blight and plan to cut property tax bills.

Real Bankruptcy is renewing public confidence and spurring business investment. Racial tensions are receding. The White House has offered $320 million in “repurposed federal funds,” and has offered an additional $100 million from the bank bailout. Treasury Secretary Lew is heading for Detroit to take credit for the federal contribution. Federal welfare of $700 million between 2010 and 2012 has been propping up the sick political culture.

But Mr. Orr and Governor Snyder deserve real credit for having the guts to put the city into bankruptcy. Real bankruptcy, not the auto-industry semi-demi version.